Editing IPCC:AR6/WGIII/Chapter-15 (section)

=== Box 15.2 | Box 15.1 | Core Terms ===

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This box defines some core terms used in this chapter as well as in other chapters addressing finance issues: cost, investment, financing, public and private. The chapter makes broad use of the term ''finance'' to refer to all types of transactions involving monetary amounts. It avoids the use of the terms ''funds'' and ''funding'' to the extent possible, which should otherwise be understood as synonyms for ''money'' and ''money provided'' .

'''Cost, investment and financing: different but intertwined concepts''' '''.''' ''Cost'' encompasses capital expenditures (CAPEX or upfront investment value leveraged over the lifetime of a project) operating and maintenance expenditures (OPEX), as well as financing costs. Note that some projects e.g., related to technical assistance may only involve OPEX (e.g., staff costs) but no CAPEX, or may not incur direct financing costs (e.g., if fully financed via own funds and grants).

''Investment'' , in an economic sense, is the purchase of (or CAPEX for) a physical asset (notably infrastructure or equipment) or intangible asset (e.g., patents, IT solutions) not consumed immediately but used over time. For financial investors, physical and intangible assets take the form of financial assets such as bonds or stocks which are expected to provide income or be sold at a higher price later. In practice, investment decisions are motivated by a calculation of risk-weighted expected returns that takes into account all expected costs, as well as the different types of risks, discussed in [[#15.6.1|Section 15.6.1]] , that may impact the returns of the investment and even turn them into losses.

''Incremental cost'' (or ''investment'' ) accounts for the difference between the cost (or investment value) of a climate project compared to the cost (or investment value) of a counterfactual reference project (or investment). In cases where climate projects and investments are more cost effective than the counterfactual, the incremental cost will be negative.

Financing refers to the process of securing the money needed to cover an investment or project cost. Financing can rely on debt (e.g., through bond issuance or loan subscription), equity issuances (listed or unlisted shares), own funds (typically savings or auto-financing through retained earnings), as well as on grants and subsidies

'''Public and private: statistical standard and grey zones.''' International statistics classify economic actors as pertaining to the public or private sectors. Households always qualify as private and governmental bodies and agencies as public. Criteria are needed for other types of actors such as enterprises and financial institutions. Most statistics rely on the majority ownership and control principle. This is the case for the Balance of Payment, which records transactions between residents of a country and the rest of the world ( [[#IMF--2009|IMF 2009]] ).

Such a strict boundary between public and private sectors may not always be suitable for mapping and assessing investment and financing activities. On the one hand, some publicly owned entities may have a mandate to operate on a fully- or semi-commercial basis, for example state-owned enterprises, commercial banks, and pension funds, as well as sovereign wealth funds. On the other hand, some privately owned or controlled entities can pursue not-for-profit objectives, e.g., philanthropies and charities. The present chapter considers these nuances to the extent made possible by available data and information.

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